ANNUAL PERFORMANCE REPORT TO THE PORTFOLIO COMMITTEE OF LABOUR 1 UNEMPLOYMENT INSURANCE FUND ANNUAL PERFORMANCE REPORT TO THE PORTFOLIO COMMITTEE OF LABOUR 13 September 2017 13 SEPTEMBER 2017

FOCUS AREA 2 Financial Performance 2016/2017 1. 2. 3. 4. 5. 6. Legislative Mandate 2. Vision, Mission and Values Financial Performance 2016/2017 Auditor General 3. Alignment to NDP Annual Performance Plan 2016/2017 4. 5. 6.

3 LEGISLATIVE MANDATE

INTRODUCTION 4 Section 27, To provide adequate social security nets to protect vulnerable workers THE CONSTITUTIONAL MANDATE OF THE DOL-UIF Creation of decent employment. Providing adequate social safety nets to protect vulnerable workers THE POLICY MANDATE OF THE DOL-UIF

UNEMPLOYMENT INSURANCE ACT 5 Purpose To establish UIF to which employers and employees contribute; and from which employees who become unemployed or their beneficiaries, as the case may be , are entitled to benefits and in so doing to alleviate the harmful economic and social effects of unemployment Application of the Act The Fund must be used for the, 1. Payment of benefit in terms of this Act 2. Reimbursement of excess contributions to employers 3. Payment of - i. remuneration & allowances to members of the UI Board and its committees and ii. any other expenditure reasonably incurred and relating to the application of this ACT

UI Contributions Act No 4 of 2002 6 The purpose of this ACT is to provide for : 1. The payment of contributions for the benefit of the UIF and 2.Procedures for the collection of such contributions Purpose of Act This Act must be administered by the Commissioner The Commissioner may delegate any power or assign any duty which relates to the collection of : contributions payable to the UI Commissioner in terms of section 9 any information to be submitted by employers in terms of this ACT, UIC Administration of the ACT This Act applies to all employers & employees; other than- 1. an employee & his/her employer where such employee is employed by that employer for less than 24 hours a month 2. an employee and his /her employer where the employee receives remuneration under a learnership agreement registered in terms of the Skills Development Act, 1998 3. employers and employees in the National & provincial spheres of government 4. an employee and his or her employer where an employee has entered the RSA for purpose of carrying out a contract of service, apprenticeship or learnership within RSA, if upon termination thereof the employer is required by law to repatriate that person or if that person is so required to leave the Republic Application of the ACT

VISION, MISSION AND VALUES 7 VISION, MISSION AND VALUES

Vision, Mission and Values 8 UIF strives to contributes to the alleviation of poverty in South Africa by providing effective short term unemployment insurance to all workers who qualify for unemployment insurance and other related benefits VISION Rendering an effective and accessible service to all stakeholders Being a sustainable organization with sufficient reserves Administering the Fund professionally MISSION THE GLUE THAT HOLDS US TOGETHER Transparency Open to all stakeholders Mutual respect To all colleagues & stakeholders Client-centres services by Providing excellent & world class service to all Integrity Communicate openly and honestly with relationship based on trust Accountability Own up to our responsibilities in relations to our behaviours & actions Team Work Involve each other, work together, seek ideas and share solutions

ALIGNMENT TO NATIONAL DEVELOPMENT 9 ALIGNMENT TO NATIONAL DEVELOPMENT PLAN (NDP)

Service Delivery Outcomes & Strategic Goals 1. Outcome 4 : Decent employment through an inclusive economic growth 2. Outcome 12 : An efficient , effective & development oriented public service and an empowered and inclusive citizenship 3. Outcome 13: An inclusive & responsive social protection system 10 Service Delivery Outcomes & Strategic Goals NDP Government Outcomes Priorities of the Fund Increase contributions collected by at least a rate equal to the prevailing Consumer Price Index Increase the rate of processing claims in order to pay within the targeted service levels and turnaround times Contribute in the various schemes designed to alleviate the harmful effects of unemployment which includes investing mandated funds in Social Responsibility Investments DOL UIF Strategic Objectives 1. DOL strategic objective 1, Outcome 4 Contribute to decent employment creation 2. DOL strategic objective 5, Outcome 13) Strengthening social protection 3. DOL strategic objective 8, Outcome 12 Strengthening institutional capacity of the Department Outcome 12 Improve financial management 2. Outcome 13 Improve service delivery Outcome 13: Improve compliance 4. Outcome 4: Fund poverty alleviation scheme Maintain effective systems of internal control as required by the Public Finance Management Act

UIF Annual Performance Review 11 UIF Annual Performance Review

ANNUAL OVERALL ORGANISATIONAL PERFORMANCE PER INDICATOR 12 ANNUAL OVERALL ORGANISATIONAL PERFORMANCE PER INDICATOR STRATEGIC OBJECTIVES ACTUAL OUTPUT - VALIDATED Overall Achievement Planned Indicators Achieved Not Achieved Improve financial management 3 2 1 67% Improve service delivery 50% Improve compliance to the unemployment insurance acts 4 Fund poverty alleviation schemes 33% OVERALL PERFORMANCE 12 6 PERFORMANCE %

UNEMPLOYMENT INSURANCE FUND 13 UNEMPLOYMENT INSURANCE FUND PROGRAMME 1: ADMINISTRATION STRATEGIC OBJECTIVE 1: IMPROVE FINANCIAL MANAGEMENT KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Percentage return on investment. CPI + 2.5% return on investment by March 2017 Not Achieved: 5.90% (R7 286 919 311/123 522 767 644 x100) return on investment was achieved by March 2017. The South African economy will continue to run a negative output gap and remain in a stagflation bind for the rest of 2016/2017. The Fund will review its investment strategy in line with the prevailing economic condition guided by actuarial evaluation Administrative expenditure (excluding capex) as a percentage of revenue. Administrative expenditure ≤ 15% by March 2017 Achieved: Administrative expenditure (excluding capex) was 11 % of revenue (2038016/18239065x100) of administrative expenditure as at March 2017   Percentage of total mandated social responsible investment committed 80% by March 2017. (Total investment as at beginning of financial year). 85% (R 20 935 691 043/24704 553x100) of total mandated social responsible investment committed by March 2017.

UNEMPLOYMENT INSURANCE FUND 14 PROGRAMME 2: BUSINESS OPERATIONS STRATEGIC OBJECTIVE 2: IMPROVE SERVICE DELIVERY KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Percentage of valid claims with complete information approved or rejected. 90% of valid claims with complete information approved or rejected within five weeks of application by March 2017 Not Achieved: Gauteng Total received = 762 938 Total finalised = 675 416 =89%. Received = 211 055. Finalised = 175 482. = 83%. North West Received = 33 265 Finalised = 31 155 = 94%. Limpopo Received = 63 262 Finalised =54 124 = 86%. Mpumalanga Received = 62 594 Finalised = 57 020 = 91%. Free State Received = 33 613 Finalised = 27 395 = 82% Lack of capacity at service points. Bandwidth/slow network performance. Regular system downtime. 258 UIF CSO posts have been approved for deployment in the Provinces The entire Labour Centre model will be reviewed in the new financial year.   Procurement of switches for upgrading the network will be finalized by September 2017.

UNEMPLOYMENT INSURANCE FUND 15 PROGRAMME 2: BUSINESS OPERATIONS continued STRATEGIC OBJECTIVE 2: IMPROVE SERVICE DELIVERY KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Kwazulu-Natal Received = 135 488. Finalised = 127 189 = 94%. Eastern Cape Received = 68127 Finalised = 58386 = 86%. Western Cape Received = 126 061 Finalised = 116 338 = 92%. Northern Cape Received = 29 473 Finalised= 28 327 = 96%.

UNEMPLOYMENT INSURANCE FUND 16 PROGRAMME 2: BUSINESS OPERATIONS STRATEGIC OBJECTIVE 2: IMPROVE SERVICE DELIVERY KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Number of claims submitted through U-Filing claims portal. 20 000 claims submitted through U-Filing claims portal by March 2017. Achieved   21 872 claims submitted through U-filing portal

UNEMPLOYMENT INSURANCE FUND 17 PROGRAMME 2: BUSINESS OPERATIONS STRATEGIC OBJECTIVE 3:STRATEGIC OBJECTIVE 3: IMPROVE COMPLIANCE TO UNEMPLOYMENT INSURANCE ACTS KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Percentage increase in the number of newly registered employers 55 000 by March 2017 Achieved: Total of 58 351 new employers were registered Percentage increase in revenue 7.5% by March 2017 Not Achieved: March. 2017 – R18 256 811 119.38   March. 2016 – R17 120 380 688.29 Which yielded a 6.6% instead of 7.5% increase in contributions revenue received during the reporting period. UIF received 6.6% revenue against a target of 7.5% due to increase in unemployment. The target for the 2017/18 financial year is reviewed down to 7.2% based on the actuarial estimates .

UNEMPLOYMENT INSURANCE FUND 18 PROGRAMME 2: BUSINESS OPERATIONS STRATEGIC OBJECTIVE 3: IMPROVE COMPLIANCE TO UNEMPLOYMENT INSURANCE ACTS KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Percentage of Overpayment balance collected (Opening Balance plus new overpayments noted less write offs and cancellations). 20% by March 2017 Not Achieved: Collected 19.60% of the current balance – R310 061 959.93 mil (rounded off) which comprises of: Opening Balance: R202 894 783.07 + New: R109 496 783.70+ COA R772 214.64 -Cancellations: R2 677 581.78 - Unco-w/o R424 239.71 Recoveries: R 60 757 925.74 This is due to high rate in which new debt is raised, as well as the employment status of debtors who owe the Fund, that is, unemployed persons. The compliance strategy will be implemented.

UNEMPLOYMENT INSURANCE FUND 19 UNEMPLOYMENT INSURANCE FUND PROGRAMME 2: BUSINESS OPERATIONS STRATEGIC OBJECTIVE 3: IMPROVE COMPLIANCE TO UNEMPLOYMENT INSURANCE ACTS KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Increase in number of employers using U-filing system per year 17 000 by March 2017 Achieved: 17 488 employers using U-filing

UNEMPLOYMENT INSURANCE FUND 20 UNEMPLOYMENT INSURANCE FUND PROGRAMME 3: LABOUR ACTIVATION PROGRAMMES STRATEGIC OBJECTIVE 4: FUND POVERTY ALLEVIATION SCHEMES KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Percentage of budgeted funds transferred for turnaround solutions implementation by PSA 80% of budgeted funds transferred by 31 March 2017 Not Achieved: (24 451 667 / 97 806 667 X 100) 25% Productivity SA picked up possible financial irregularities that could impact the funding agreement with UIF and accounting for funds. To this end PSA requested UIF to assist in investigating the financial irregularities. The UIF and Productivity SA agreed to ring fence funds under investigation to enable a R24 million transfer which would be used to fund Turn Around Solutions for remainder of year. Turnaround time to approve or reject Training Lay- Off Scheme application received from SETA. Within 30 days after receipt of application 5 application received, 2 approved and 3 rejected within 30 days

UNEMPLOYMENT INSURANCE FUND 21 UNEMPLOYMENT INSURANCE FUND PROGRAMME 3: LABOUR ACTIVATION PROGRAMMES STRATEGIC OBJECTIVE 4: FUND POVERTY ALLEVIATION SCHEMES KEY PERFORMANCE INDICATORS ANNUAL TARGETS PROGRESS REASON FOR VARIANCE CORRECTIVE MEASURE Turnaround time to transfer funds to a SETA after the approval of a training Lay-Off scheme application. Within 30 days after approval of application Achieved: Funds were transferred to a SETA 53 days after the approval of a Training Lay-Off scheme application   Funds were not transferred within 30 days after approval of the training Lay Off scheme The approval process took longer than anticipated. The directorate to develop indicators that are within their control.

UNEMPLOYMENT INSURANCE FUND 22 UNEMPLOYMENT INSURANCE FUND STRATEGY TO OVERCOME AREAS OF UNDERPERFORMANCE No. Performance indicator Major variance and reasons Action taken to resolve the problem 1. Percentage return on investment. The South African economy ran a negative output gap and remained in a stagflation for the rest of 2016/2017. The Fund reviewed the investment target as per the advise from actuarial valuations 2. Percentage of valid claims with complete information approved or rejected ( as per Funds Operational System per year ) Inadequate capacity at service points. Bandwidth / slow network performance and regular system downtime The entire Labour Centre model will be reviewed in the new financial year. 258 CSO posts in the process of being filled. Procurement of switches for upgrading the network will be finalize by September 2017 3. Percentage increase in Revenue per year Actual revenue that is received fluctuates based on the economic factors prevailing at the time including technical recession The target for the 2017/18 financial year is set down to 7.2% based on the actuarial estimates

UNEMPLOYMENT INSURANCE FUND STRATEGY TO OVERCOME AREAS OF UNDERPERFORMANCE 23 No. Performance indicator Major variance and reasons Action taken to resolve the problem 4. Percentage of budgeted funds transferred for turnaround solutions implementation by PSA Non-compliance with funding agreement by PSA. Due diligence measures to be agreed upon by PSA and UIF to ensure timeous funding for 2017/18. 5. Turnaround time to transfer funds to a SETA after the approval of a training Lay-Off scheme application The approval process took longer due to due diligence processes. Due diligence measures to be agreed upon by SETA’s and UIF to ensure timeous transfer of funds for 2017/18. 6. Percentage reduction in overpayment balance ( Opening balance plus new overpayments noted less write offs and cancellations) Target was underachieved by 0.4% due to increased number of debtors unable to repay debt due to being unemployed. Implement the compliance strategy to improve compliance by employers

UIF Annual Financial Performance 24 UIF Annual Financial Performance

STATEMENT OF FINANCIAL PERFORMANCE AS AT MARCH 2017 25 31 March 2016 R’000 31 March 2017 Year on Year Percentage Variance  COMMENTS Revenue 17 120 381 18 256 811 1 136 430 (7%) Revenue is made up of contributions +90% contributions received is collected by SARS . The increase is due to new employers registered and inflation increased on salaries. Benefit payments (7 691 153) (8 478 357) 787 204 (10%) Unemployment benefit = 82% Illness benefits increased by 3% Maternity benefits = 11% Defendant benefit = 4 % More unemployment benefits were paid in the current year. Income from Investments 7 746 161 9 199 602 1 453 441 (19%) Interest and dividends on investment is lesser than the budget. This is due to the current volatile economic climate. Other income 6 147 7 657 1 510 (25%) Compromise of rental income from investment properties, recoveries on overpayments written off and proceeds on disposals of assets. Administration Costs (826 632) (926 307) 99 675 (12%) The main cost driver : Commissions SARS and PIC , Computer services, Operating Leases. Portfolio management fee increase in line with the growth in the portfolio. Poverty Alleviation Schemes (80 571) (145 487) 64 907 (81%) More training interventions for the unemployed were done in the current year.

STATEMENT OF FINANCIAL PERFORMANCE AS AT MARCH 2017 26 31 March 2016 R’000 31 March 2017 Year on Year Percentage Variance  COMMENTS Employee costs (941 945) (1 065 877) 123 932 (13%) The increase in compensation of employees is due to the new structure and growth in the Fund. Fair value adjustments (4 233 877) (2 610 167) 1 623 710 (-38%) Unrealized Profit/ Loss. Net surplus / ( deficit) 13 212 557 10 686 137 2 526 137 (24%)

Statement of Financial Position as at March 2017 27  March 2016 R’000 March 2017 PERCENTAGE%  COMMENTS Property , plant and Equipment 217 428 253 611 16% The increase is due to the purchases of computer equipment and computer software. Current Assets 227 903 1 736 431 662% The increase in current assets is due to an outstanding contribution totalling R1,7 billion from the National Revenue Fund. Current Liabilities 4 548 531 5 590 314 22% The increase is due to the increase in benefit payables form R4,2 billion to R5,2 billion. The rate of unemployment has increased. Total investment portfolio 122 253 861 136 965 542 12% Total investment portfolio . The Fund has invested its portfolio in different investment instruments through PIC.

AG Audit Opinion for 2016/17 Financial Year 28 The Fund received a Disclaimer Opinion from AG. Basis for Disclaimer Opinion “ AG Remarks” Investments The value of unlisted investments in the annual financial statements did not agree to amounts in the supporting evidence. Consequently investments were understated by R721 262 989. There was a resultant impact on the surplus for the period and on the accumulated surplus in the financial statements. Additionally, significant investments in subsidiaries and associates were not consolidated and equity accounted respectively in accordance with GRAP 6, Consolidated and separate financial statement and GRAP 7, Investments in associates. I was not able to determine the impact of not consolidating and/or equity accounting on the overall financial statements. Furthermore, I was unable to obtain sufficient appropriate audit evidence for the balances disclosed for investments due to number of adjustments to the supporting evidence. I was unable to confirm the stated amounts by alternative means. Consequently, I was unable to determine whether any adjustment was necessary to the investments amounts stated at R135 667 993 000 in the financial statements.

Basis for Disclaimer Opinion 29 Investment revenue and fair value adjustments I was unable to obtain sufficient appropriate audit evidence that investment revenue and fair value adjustments for the year under review had been properly accounted for, due to number of adjustments to the supporting evidence. I was unable to confirm investment revenue and fair value adjustments by alternative means. Consequently, I was unable to determine whether any adjustment was necessary to confirm investment revenue and fair value adjustments stated at R9 199 602 000 and R2 610 167 000 respectively in the financial statements.

Operation Clean Audit 2017/18 30 A Management Action plan has been developed and is being implemented. Meetings were held with PIC to address the audit findings. Technical opinion on Grap6, 7 and 8 has been sought.

66 Thank You…